Singapore Post Ltd - Maybank Kim Eng 2016-08-05: A lacklustre start

SINGAPORE POST LIMITED S08.SI

Singapore Post Ltd (SPOST SP) - A lacklustre start

1Q17 results were in line with our expectation, but below consensus, achieving 23%/21% of our/consensus forecast.
Core earnings fell 11% YoY due to a loss of rental income from the redevelopment of SPC mall, depreciation charges on e-Commerce logistics hub, and investment in commerce.

SingPost is still in transition and more investments might be needed to drive growth. Also, the street’s 11% YoY earnings growth for FY17 appear to be too bullish.
Maintain SELL and DCF TP of SGD1.29 (WACC 11.3%, LTG 1.0%).

The biggest contributor, mail segment, remains stable, where revenue and operating profit grew 1.5% and 0.4% YoY, respectively as the decline in domestic mail was offset by international mail. Management expects this segment to remain steady.
On the other hand, revenue and operating profit for logistics segment grew 12% and 6% YoY, respectively. Operating margin for this segment declined 0.3% due to depreciation expenses and one-off costs incurred for the move to Regional e- Commerce Logistics Hub, expected to begin operation in Oct 2016.

E-commerce segment continued to record a marginal operating loss of SGD3.5m, due to marketing and sales efforts in the US to scale up. The newly-acquired Trade Global and Jagged Peak contributed to operating profit. Management expects this segment to deliver better results in the peak period, which falls on Nov-Dec.

Despite no reduction to SGD1.5cts dividend in 1Q17, the dividend policy is still under review. The revised policy will likely be tied to profitability, which will depend highly on SingPost’s performance in its peak season in 3Q17. Although the old SGD7cts dividend is still possible with some additional borrowings, it implies a FY17E payout ratio of c.100%.

John Cheong CFA Maybank Kim Eng | http://www.maybank-ke.com.sg/ 2016-08-05

OCBC Securities SGX Stock Analyst Report SELL Maintain SELL 1.29 Same 1.29